When the economy starts to falter, many companies go through measures aimed at tightening the belt. For South Africa’s property development market, the effects have been more significant, given the industry’s reliance on financing from sometimes less than enthusiastic banks. At MSP Developments however, business has continued to gather pace thanks to a combination of high quality affordable property developments and a shrewd risk assessment strategy.
The business, part of MSP Group (Pty) Ltd., focuses on construction projects that provide high quality yet affordable housing across the country. At the helm for many of the successful projects over the past four years, John Coetzee is the Managing Director for MSP Projects and the PDP project team, all part of the group:
“MSP Developments is a construction company that has its roots back at the start of the century, when the owner moved from Johannesburg down to Cape Town. In 2007 a BBE initiative – a South African focused black economically empowered investment holding company, acquired a holding in the business, which currently stands at a 50 per cent shareholding.
“The name MSP stands for Multi Spectrum Properties and whilst we have successfully worked on a number of major residential projects, we also provide expertise across a wider spectrum of developments including retail and commercial,” Coetzee describes.
Coetzee joined the business some four years ago after a successful period working for the now defunct property group Charles Potgieter Investments (CPI), where he oversaw the construction of the 5,803 unit Burgundy Estate. His arrival at MSP merely added to the knowledge and expertise that set the Group apart and ultimately make the thorough risk assessment process worthwhile.
By 2009 the banks were tightening their lending criteria, a highly-renowned financial business institution, Old Mutual an occasional business associate of MSP, had already launched a Financial Services Charter (FSC), which had garnered support from many of the major lenders. This was significant, given Old Mutual’s commitment to the affordable housing sector and was an initiative that Coetzee says MSP quickly took on board:
“We work on a number of projects that involve sectional title housing, where the purchaser is only responsible for the interior of the property and pays a levy for the upkeep of maintenance, grass cutting and other services. The risk assessment really comes into its own with this type of development, as the banks expect up to 80 per cent of the properties to be sold before they will consider lending and it often takes 15 months to complete the link from selling to building.
“We have forged good links with the banks and we apply their scorecards to our own applications and score people before submitting to the bank.
“Old Mutual provided specific financial criteria on householder’s income and enables an accurate assessment of the financial feasibility of a project. We have adopted this concept and carry out extensive research on the demographics of an area in regards to affordability, before any project gets the green light. It is key that we only work in areas where municipalities and key people have the knowledge and willingness to help us – if that isn’t the case we look elsewhere.
“We effectively do an A-Z, clients come to us with land and we analyse the risks – we will go through due diligence which can take up to three months to complete. We look at the costs of design, preliminary costing and design with architects and the number of proposed units. If the selling price for the land is correct we will conduct a feasibility study on the rate of return and only then will we approach the banks for financing.”
Such a meticulous approach goes further when the financial institutions look at the track record for MSP, which also provides buyer education advice for those buying units, which in turn helps to reduce the risk of repossessions.
The process also requires vast knowledge and expertise within the company and Coetzee says that the days of using Excel spreadsheets to make assessments has long since passed, suggesting that 99 per cent of the success is down to knowledge rather than technology.
Headquartered in Durbanville, MSP’s 119 employees have an excellent retention rate, with roughly half of the workforce involved in external work and a network of 50 or so agents selling our opportunities around South Africa.
Coetzee is reserved when discussing flagship projects, but is undeniably proud of the current work underway on the Buh-Rein Estate in Northern Suburbs of Cape Town:
“Every project you work on becomes your flagship – over time you complete better developments, make better sales, use better technology and incorporate different designs to meet changing lifestyle requirements,” he acknowledges.
“Our projects at Buh-Rein and Bella Donna are beautiful upper grade developments and we are very proud of these, while we also recently completed the 8,500 metre square Avonwood Shopping Centre, which is already 90 per cent let.”
Buh-Rein Estate is the largest private development currently being undertaken in the Western Cape. This massive new Tygerberg suburb includes 3,241 apartments, 133 freestanding homes and 137 townhouses.
Homes released by MSP Developments aim to provide best possible value for money to purchaser, and Saint Clair is no exception. Riaan Roos, CEO of MSP Developments said: “Saint Clair consists of 60 contemporary studios and one- and two-bedroom apartments, and offers really excellent value for money, with pricing starting from only R344 900, inclusive of all costs. Saint Clair is perfect for first-time buyers. A joint household income of R10 500 per month would allow a couple to comfortably purchase a studio apartment. It hardly makes sense to pay rent when you can buy at this price.”
The Belladonna Estate, situated in Blue Downs, Cape Town, has been designed to provide affordable housing in a community-village and was one of MSP’s inaugural “lifestyle” developments. During construction Coetzee aptly summarised the company’s intentions for the development: “Belladonna is another example of how we can produce an affordable, yet high-quality solution to the very real need for housing in this bracket.”
The latest addition to an ever-growing portfolio is the Sitari Fields Estate; formerly a 185 hectare site containing a golf course and two hotels, the development succumbed to the economic downturn and was purchased by MSP via auction.
“This will be one of the last gated communities, with a wall surrounding the estate and two entrances,” describes Coetzee. “We are aiming to start working on the infrastructure in February 2013 and hope to complete in five to six years. Upon completion the development will include 3,150 units, but the real feature will be the 22 hectare wetland which is over 400 years old.”
Whilst the present economic climate is presenting challenges for many, Coetzee remains very upbeat: “Every time is good. The effort you put in is the effort you get out and in this business you have to have the passion, good will and good staff.
“At the same time we are aware that affordability is less and less and peoples’ salaries have not adjusted with the increased cost of living. We have tried to bring affordability to these people but have seen our sales ratio deteriorate to four to one (last year it was more like one in three). The net effect has been that the rental market is getting stronger and we have started to introduce rent to buy options.”
With the company’s comprehensive new OSIS IT system now fully integrated, communication with all stakeholders on every project has been greatly enhanced. Coetzee says that the next stage will be to review procurement and construction delivery times as the industry braces itself for tougher times:
“South Africa is not in full recession yet, but the next two years are going to be very challenging for any company. The good side is that we have the support of a very good corporate group.”